Getting approved for a loan or credit card isn’t always easy. Potential customers often have to jump through multiple hoops as part of the application process, and there’s no guarantee that this will result in a lender’s tick of approval either.
But this process may soon become easier for borrowers.
In late September, the government announced that it plans to stimulate the economy by removing the responsible lending obligation from the National Consumer Credit Protection Act (2009).
With the nation now in recession – or recently out of one, depending on who you talk to – the government is hoping that an increase in lending will boost the flow of credit to small businesses and households. This, in turn, should stimulate economic activity – at least in the short term.
How will this impact me?
If the current regulations are lifted as intended, taking out a mortgage, a personal loan or a credit card will become easier, and you’ll undergo less scrutiny when lodging your application. But the onus of responsibility will primarily rest on you as the borrower, and not your lender.
In other words, it will be up to you to ensure that you can service your debt.
This means that you won’t need to provide your lender with as much information about your financial situation, but you’ll need to be realistic about what you can afford to repay.
Although lending laws are being relaxed, strict consumer protection laws will still remain in place. Banks and lenders need to adhere to credit licensing obligations and ensure that they’re being upfront with customers.
How can I protect myself as a borrower?
Acquiring debt will always carry a degree of risk – especially if you’re relying on borrowed funds to pay for larger purchases like a property. Below are some steps that you can take to ensure you’re borrowing within your means.
Assess your budget
Sure, you might be in a strong financial position today, but ask yourself if you could afford your repayments if you lost your job, or were faced with an unexpected emergency. You need to ensure that your repayments aren’t going to impact your ability to afford day-to-day expenses or prevent you from growing your savings account.
It’s also important to factor in enough financial wiggle room to accommodate any interest rate increases down the track.
Make informed borrowing decisions
Take the time to research your preferred loan product before lodging an application. Become familiar with the pros and cons, along with any potential risks involved. Interest rates shouldn’t be the only thing you compare when assessing the market – look out for things like fees, introductory offers, loan terms and whether you can make additional repayments.
Maintain a good credit score
Your credit score is a number that represents how reliable you are to lend to. The higher your credit score, the greater the likelihood that you’ll be approved for finance.
The Finder App will show you your credit score for free and continuously monitor it in case it changes. Lenders can your number, so why shouldn’t you?
The app also offers a chance of approval feature, which indicates the likelihood of getting accepted for a credit product like a loan or credit card. This can prevent you from applying for a product, only to be rejected and damage your credit score.
Speak to a professional
If you’re still unsure, enlist the services of a financial advisor or broker to help you understand your financial position and guide you through the application process. They should be able to highlight the best option for your own financial needs and ensure that you aren’t overleveraged.
If you’re going to apply for a loan or credit card, it’s important to do your homework and be prepared first.
Bessie Hassan is a money expert at Finder